Thursday, 28 February 2013

Economists disagree on some policies; you can usually find an economist willing to support some policy proposition that his colleagues won't like. But, surely, were there some set of policies agreed upon by economists from across the spectrum, it would probably be a good one, right?

Over the last decade, Bryan Caplan produced a series of papers and a book showing that economists' views on matters of positive economics diverged widely from the views of the public, even after correcting for income, ideology, education, and a host of other covariates. Broadly speaking, relative to economists, the public were shown to be pessimistic, xenophobic, anti-business, and to love make-work projects.

Paola Sapienza and Luigi Zingales have added* to this literature with a new Chicago Booth working paper: Economic Experts vs Average Americans. They compare public and economist support for a series of policy propositions and conclude that the set of policies that would command substantial agreement among economists would have little chance of electoral success.

I've a few quibbles with their method: they collapse "agree" and "strongly agree" into single categories; there can be useful information in strength of agreement. When we're thinking about giving up a bit on a less-important policy to get concessions on something that's more important, preference-intensity matters.

I'll also quibble a bit with the Booth Panel as being that representative a sample. First off, the survey shows that Booth Panel economists trust government more than does the general public. I'm not sure that that's a finding that would be found in a broader survey of economists, but it could be. But I do know that the Booth panel's views on the minimum wage differ vastly from every prior survey of economists I've seen on it: the Booth Panel had 47% support for the $9 US minimum wage (albeit with many supporters saying in the comments that hiking the EITC would be even better); Whaples 2006 (see here or here) had 87% of economists agreeing that minimum wages hurt the job prospects of the young and unskilled, and 47% wanting to abolish the minimum wage entirely.Whaples 1996 had 87% of economists agreeing that minimum wages hurt the job prospects of the young and unskilled while Whaples 2006 had 47% wanting to abolish the minimum wage entirely. [Thanks to David Friedman, in comments, catching that I'd meant to put "1996 and 2006, respectively," rather than 2006. I'd linked both sources but screwed up the attribution in text. It matters because consensus could have deteriorated over the decade.]

But, the differences remain striking. Even among a sample of high-trust-in-markets Democrat members of the public, average differences in agreement between economists and the public across questions was thirty percentage points.

Well, maybe this is all because people can always find some economist who'd agree with their position. But in that case, we'd expect to find smaller differences between economists and the public where economists agree with each other more strongly; they find the opposite. They put the difference up to specific training in economics and expert knowledge among economists - about what Caplan had concluded a decade ago. But they add a very nice twist: one wave of the public survey included information in the relevant questions, "Nearly all economic experts agree that ...". Telling the public that economists agree on something usually very slightly reduced disagreement, but sometimes made things worse.

They probe further into disagreements and find some evidence that the public have different ceteris paribus assumptions. Economists pretty much all agree that carbon taxes are much better than CAFE regs. But economists also tend to assume that carbon taxes will be handled in some revenue-neutral way with offsetting transfers. And the public doesn't trust government to actually make things revenue-neutral.** They then put most of the differences down to differential auxiliary assumptions around ceteris paribus. But Caplan's prior work was on purely positive questions like whether foreign aid spending is a major reason that the economy is performing poorly. I'm not sure what auxiliary assumptions might have driven the vast differences he was finding.

I don't have particular reason to doubt their results around trust in government. But even if you didn't trust the government to make sure a carbon tax were revenue-neutral, CAFE standards are a really wasteful way of achieving any particular goal: you force the public to pay $1 for enhanced fuel economy that they maybe value at $0.80.*** Wouldn't you then only prefer CAFE over carbon taxes if you valued the marginal dollar of government spending somewhere south of $0.80? That's plausible for me, but is it plausible in a general sample? Well, maybe if they have systematic misperceptions about the composition of the federal budget and where the marginal dollar goes....

** I'm not sure the public's wrong here either. Yeah yeah, we put up some nice revenue-neutral policy with tax cuts. But once a new domain's been opened to taxation, it's a lot easier to ratchet back the income tax cuts while keeping the new tax. So is the problem then voters' lack of trust, or governments' inability to make binding commitments?

Wednesday, 27 February 2013

When I was at George Mason, the State of Virginia ran a tourism campaign called "Virginia is for Lovers". That campaign's been around for a while.

In 2006, Virginia passed the Marshall-Newman Amendment to the State Constitution defining marriage as being only between one man and one woman, and barring anything providing recognition of marriage-like contracts between homosexual couples or polyamourous groups. 1,328,537 people in Virginia voted to ban homosexual couples' contractual rights; 999,687 voted against the Amendment.

New Zealand implemented civil unions under Helen Clark's Labour government. At the time, it seemed a great way of getting contractual rights for same-sex couples without imposing undue distress on social conservatives. But the Act has proven deficient, especially around adoption rights recognizing the same-sex partner as the co-parent of an adopted child.

The Marriage (Definition of Marriage) Amendment Bill, a Private Member's Bill, is currently before the New Zealand Parliament. It will enshrine true marriage equality while maintaining freedom of association rights: celebrants or churches that do not wish to consecrate same-sex partnerships will not have to. While some, like @norightturn, have criticised this as illegal discrimination, the freedom of association rights seem awfully important. Further, if there were somebody who hated Canadians so much he didn't want to be celebrant at weddings involving Canadians, I'd really like him to be on some kind of register so I didn't accidentally hire him were I in the market for a wedding celebrant.

We accept that for many people of religious persuasion marriage is a covenant between one man, one woman, and God, for the purpose of procreation. A large number of people and organisations have expressed their concern that, were this bill to pass, celebrants could not lawfully refuse to solemnise a marriage that would conflict with their religious beliefs. Other people with religious convictions argue that marriage is foremost about celebrating the love shared between two people, and that their inability to marry same-sex couples constitutes a constraint on their freedom to practice their religion. We accept the right of people to hold religious and cultural beliefs, and we make no attempt to dissuade people from holding them.

It is our intention that the passage of this bill should not impact negatively upon people’s religious freedoms. The Marriage Act enables people to become legally married; it does not ascribe moral or religious values to marriage. The bill seeks to extend the legal right to marry to same-sex couples; it does not seek to interfere with people’s religious freedoms. We recommend an amendment to section 29 of the Marriage Act, which we discuss later in this commentary, to clarify beyond doubt that no celebrant who is a minister of religion recognised by a religious body enumerated in Schedule 1, and no celebrant who is a person nominated to solemnise a marriage by an approved organisation, is obliged to solemnise if solemnising that marriage would contravene the religious beliefs of the religious body or the religious beliefs or philosophical or humanitarian convictions of the approved organisation.

Nice and pragmatic.

The Committee also highlights an issue I'd never considered with current civil union rules:

We wish to highlight an issue brought to our attention by transgender people. At present, married transgender people wanting their sex changed on their birth record (to enable them to fully adopt the gender of their choice) must either divorce their spouse or change their relationship from a marriage to a civil union. We are aware of how distressing this can be for transgender people in this position, and how disruptive it can be for their families. We consider that transgender people should be able to change sex without being subject to these constraints. The bill as consequentially amended would enable any transgender people to continue tobe married regardless of their gender identity

I'd quickly reviewed the literature on direct-to-consumer pharmaceutical advertising after a rather ill-considered call for a ban on it in New Zealand. I concluded that the best case you could make against DTC advertising would have a harder time applying to New Zealand given Pharmac, and that even that best case was empirically questionable given the reasonable existing evidence of consumer benefits.

In short, there's a pretty big literature on the actual effects of direct-to-consumer advertising of drugs. It's far from obvious that banning it is a good idea, and, in particular, that it would be a good idea here given the structure of our pharmaceutical market.

This review discusses the role of consumer-directed and physician-directed promotion in the pharmaceutical market, based on the classic conceptual framework of whether such promotion is “persuasive” and/or “informative”. Implications for public health and welfare partly depend on whether, and to what extent, advertising: 1) raises “selective” or brand-specific demand versus “primary” or industry-wide demand; 2) impacts drug costs; and 3) impacts competition. Empirical evidence from the literature bearing on these effects is surveyed. These studies show that pharmaceutical promotion has both informative and persuasive elements. Consumer advertising is more effective at enlarging the market, educating consumers, inducing physician contact, expanding drug treatment, and promoting adherence among existing users. Physician advertising is primarily persuasive in nature, effectively increasing selective brand demand. There is no strong evidence the drug promotion deters entry, and there is some suggestive evidence that it may even be mildly pro-competitive. There is also no strong evidence that either consumer- or provider-directed promotion substantially raises retail-level prices. While all of these effects point to welfare improvements as a result of pharmaceutical promotion, there is also evidence that consumer ads may induce overuse and overtreatment in certain cases. Market expansion, overtreatment and shifting brands for non-therapeutic reasons further raise the concern of a sub-optimal patient-drug match at least for some marginal patients. A comprehensive evaluation of the welfare effects of pharmaceutical promotion requires a balanced assessment of these benefits and costs.

Tuesday, 26 February 2013

Despite inflation outcomes slightly below the lower-bound of RBNZ's inflation target, and despite high unemployment rates, New Zealand's increased the minimum wage by $0.25 to $13.75.

It's mildly interesting to check the CPI-deflated series and one indexed to average wages.
The blue and red lines track the nominal and CPI-adjusted minimum wages on the left hand axis; the yellow line traces the adult minimum wage as a percentage of the average wage on the right hand axis. In 1996, the minimum wage was 40.6% of the average wage. That increased to 50.4% of the average by 2008 and has held steady there since then.

NZ youths in their first 200-hours of work are now eligible for a new-entrant's wage that's 80% of the adult minimum wage: $11. That's 40.3% of the average wage (not the median, the average) for a new 16 year old worker with no experience.

Australia allows a youth minimum wage of $7.55 for 16 year olds.

Maybe there are reasons in the behavioural economics literature for nominal wage rigidity. But government does seem to like to turn that into real wage rigidity for the bottom of the wage distribution.

If National can't countenance holding the minimum wage steady when inflation is below 1%...

Well, it turns out that there could be a crisis. Here are the latest figures from Statistics New Zealand:

The volume of alcoholic beverage available for consumption in New Zealand fell 3.3 percent in 2012, Statistics New Zealand said today. The decrease was due to a fall in the volume of beer, down 20 million litres. This fall was partly offset by a 4.3 million litre rise in the volume of wine.

“Although the volume of alcoholic beverages available was down more than 3.0 percent, the amount of pure alcohol fell only 0.6 percent,” industry and labour statistics manager Louise Holmes-Oliver said. “This was due to change in the types of beverages available."

An increase in the volume of higher-alcohol beverages such as wine, spirits, and spirit-based drinks accounts for the smaller fall in pure alcohol available. The volume of high-alcohol beer (over 5.0 percent) also increased. In contrast, all other beer categories available for consumption have decreased.

The volume of pure alcohol available for consumption per person aged 15 years and over fell 1.7 percent, to 9.3 litres in 2012. This is equivalent to an average of 2.0 standard drinks daily per person (aged 15 years and over).

Alcohol statistics are a measure of how much alcohol is available for consumption, rather than actual consumption.

The Radio NZ report is slightly inaccurate: we didn't have a 15 million litre drop in alcohol production; we had a 15 million litre drop in the volume of alcoholic beverage available for consumption. New Zealand produces a lot of wine for export and imports a lot of spirits: volume available for consumption accounts for that.

A 1.7% drop in pure alcohol available for consumption may be a crisis though, depending on how sensitive a trigger you have for such things. I'm very likely engaging in a bit of hyperbole in calling a 1.7% per capita drop a crisis. But if we have a bit of mean reversion next year, any guesses whether a 1.5% increase would be called a crisis?

Here's the time path. Some crisis.

The anti-alcohol brigade are shifting their efforts to local politics since the alcohol reform bill widened scope for local government control of alcohol use. When your local busybody starts lobbying for earlier closing times, fewer bars, fewer off-licence agents, restrictions on alcohol in supermarkets, or broader areas where open liquor is banned, and present data that pick 1998 as starting point to get a seemingly neutral "over the last 15 years", please do point your Council to the Stats NZ series.

The 2008 New Zealand Election Survey asked whether the government should control wages and whether strong action is needed on global warming, but had no questions on the employment effects of minimum wages. It's not the best: maybe some folks want maximum wages but don't like minimum wages, and maybe some (like me) are happy to take the evidence on global warming but are less convinced we need to invest massive resources in mitigation today - I'd have been somewhere between neutral and support on that question.

Here's the raw cross-tab.

Those who accept the science on government wage controls should oppose or strongly oppose them; those who deny the science on government wage controls will be more likely to support or strongly support them.

There are 1,471 of 2,892 respondents who accept the science on wages and 542 of 2,892 who reject it. Among those accepting the science on wages, 46.6% support or strongly support government action on global warming while 27% oppose or strongly oppose it. Among those neutral or opposed to the science on wages, 60.4% support or strongly support government action on warming while 15.2% oppose or strongly oppose it. These hit the 7+ t-stats. So disagreeing with the science on wages seems to predict stronger support of climate policy.

Among those supporting or strongly supporting strong government action on global warming, 45.8% accept the science on wages and 22.9% reject it. Among those neutral or opposed to strong action on climate, 59.7% accept the science on wages while 12.9% deny it. The t-stats on these across groups are higher than 7.

So if those supporting government action on climate are more likely to have supported the science, those supporting climate science seem significantly less likely to accept the science on wages and significantly more likely to reject the science on wages. And supporting the science on wage controls correlates with lower support for government action on climate and stronger opposition to it.

It's not a pure test because it's not anti-science to say that the scientists are right about mean expected warming over the next century but still to oppose "strong action" because you don't think it passes cost-benefit analysis. But you'd expect that there'd at least be a positive correlation between accepting the science and wanting action - it would seem odd to want action on climate change while thinking there's no warming.

The survey also has a measure of self-reported ideology: 0 left, 9 right, 5.4 mean. Another fun fact: dropping all the "don't know" respondents, mean self-reported ideology is 5.5 among those accepting wage science and 5.2 for everyone else; mean reported ideology among those wanting strong action on climate change is 4.8 and 6 for everyone else. The t-stat on group differences in ideology on climate is 11.9; on wages, 3.6. So the ideological divide on climate policy seems greater than that on wage controls.

I'd previously put together a couple of factor scores pulling together responses on social questions to get a measure of social liberalism and one on economic questions to get a measure on economic liberalism. I'd left the climate action question out of both factor analyses because supporting "action" on climate is neither pro- nor anti-market.* So I have a mean zero, SD 1 measure on social liberalism (higher is more liberal) and on economic liberalism (higher is more liberal).

A couple quick and dirty specifications have social liberalism strongly predicting support for climate policy, economic liberalism strongly predicting opposition to climate policy, household income not affecting preferences, and education predicting increased support for climate policy. In the ordered logit specification, a standard deviation increase in social liberalism predicts a 0.41 standard deviation increase in support for climate policy; a standard deviation increase in economic liberalism predicts a 0.6 standard deviation decrease in support for climate policy; a standard deviation increase in education predicts a 0.17 standard deviation increase in support for climate policy. There aren't any other measures in there that could capture generalised attitudes towards science, alas.

There are plenty of reasons why economic liberals could come out less in favour of strong action on climate change. A few candidates, some better than others:

Accept the science, but reckon future mitigation is more likely to pass cost-benefit, or that other projects are more worthwhile (a la Lomborg). Or, in stronger form, accept the science, be sceptical about the prospects for policy to fix things, and recognise that a warmer world could well be a better world up through, say, three degrees of warming. David Friedman makes the best argument along these lines** (his earlier blog post here). I don't think anybody who grew up in Manitoba can deny that there are some positive effects from a gradual warming.

Accept the science, see a need for policy, but reckon that the "strong action" mentioned in the question means something more than the standard economic advice of a revenue-neutral carbon tax that can ramp up over time.

Accept/agnostic on the science, but see that most of the folks shouting loudest for climate action are a bit nuts on other economic issues and be hanged if you'd ally with them - heck, some seem to think that reduced economic growth is a feature rather than a bug of some climate policies. And the same bunch that shouts about global warming also reckoned that peak oil was a serious concern - which was utterly insane given that, if peak oil had been right, it would have been a part of the solution to warming! As David Friedman put it: even if there were zero evidence of global warming, many of the proponents of anti-warming policies would still support those policies, but on other grounds.

Reject the science: the loudest proponents are completely wrong on the economic issues you know something about, and really seem to have worked backwards from "policies I support" to "the data must have said X" in assessing things on those margins, so you can't reject that they've done the same here. Note that this is stronger than the explanation immediately prior: it says that the scientists are part of some kind of conspiracy.

Reject the science: macroeconomic models are a bit nuts, and climate change models have all the nuttiness of some of the big macro models but with even more uncertainty about cloud feedback loops. If economists can barely get a consensus on the government spending multiplier, how can we trust coefficients on climate sensitivity? And if sensitivity were scary bad, how did the planet ever manage not to turn into Venus a few million years ago? Sure, the models look ok over the period of calibration, but their out-of-sample predictions of warming in the 2000s weren't all that great. Until the models can figure out why warming leveled off in the 2000s, should we really trust what they say about 2150?

Pure mood/expressive affiliation, or that in combination with that pretty much every other prediction of global doom has been rather wrong.

I'm personally somewhere between 1 & 2: a low carbon tax capable of being ramped up over time could slow the pace of warming, giving more time for adaptation, and helping to guard against the scarier warming scenarios.*** I suspect that some of the opposition to climate science among those who are not climate scientists and who are not in a position to personally evaluate the quality of the literature comes from 4 & 6.

There's a reasonable contingent of pro-market people**** who are happy to take the science on climate and figure a revenue-neutral carbon tax isn't all that bad. Would that more of the pro-climate-policy crowd would come over to the intersection of Stephen Gordon's Venn diagram. It's mildly frustrating that the New Zealand Green Party excoriates those opposed to rather strong action on global warming as anti-science while rejecting the consensus views of economists on economic policy.

** The first half-hour of the linked Friedman video provides a wonderful exposition of how economists think about externality and policy; strongly recommended.

*** I take David Friedman's point on that the Nordhaus / Weitzman insurance argument for climate policy is flawed where it considers fat tail risks of doing nothing while ignoring fat tail risks of doing something. But if the main potential low-probability high-cost risk of emitting too little is another ice age, it seems easier to ramp up CO2 emissions if things look like they're heading that way than it would be to remove CO2 that's already been emitted.

Saturday, 23 February 2013

Thank you for requesting feedback about the installation of interior cameras at the high school. I am against the use of cameras. I visited the school recently to pick up my son and it was like visiting a prison. A police car often sits outside the school and upon entry a security guard directs visitors to the main office where the visitor’s drivers license is scanned and information including date of birth is collected (is this information checked against other records and kept in a database for future reference? It’s unclear). The visitor is then photographed and issued a photo pass. I found the experience oppressive Adding cameras will only add to the prison-like atmosphere. The response, of course, will be that these measures are necessary for “safety.” As with security measures at the airports I doubt that these measures increase actual safety, instead they are security theater, a play that we put on that looks like security but really is not.

...

When we surround our students with security we are implicitly telling them that the world is dangerous; we are whispering in their ear, ‘be afraid, do not venture out, take no risks.’ When going to school requires police, security guards and cameras how can I encourage my child to travel to foreign countries, to seek new experiences, to meet people of different faiths, beliefs and backgrounds? When my child leaves school how will the atmosphere of fear that he has grown up in affect his view of the world and the choices he will make as a citizen in our democracy? School teaches more than words in books.

Tuesday I attended an lunch for international families at my five year old's elementary school. The school, like most NZ schools, is a series of buildings with no internal connections. So, kids run around between buildings pretty regularly. There's a low fence around the school property, but no real checks at the gates other than teachers having some idea of who might be parents. Visitors are asked to check in at the office; parents don't particularly bother though. And, part of the schoolyard is a short-cut from the University campus to a very good dim-sum place - I walked through pretty often even before the five year old attended.

Susan and I walked over to the building where the lunch was being held, bringing our pot-luck lunch contribution, said hello, and joined in for a pleasant lunch with other families. Nobody was checking that food was made in licensed kitchens. Nobody challenged us or checked ID. There are no metal detectors or security guards. There are no security cameras. Just peaceful people enjoying the kind of company that should be the birthright of everyone, and was common in the America of thirty years ago.

You can choose to live like this too. Sure, New Zealand is getting worse, and it's definitely worse than some parts of the US if marijuana freedom is an important part of your bundle of liberties. But NZ is starting from a much better spot than the US, and it seems to be getting worse slower than other places.

Things aren't bad enough to leave yet? Fine. Freedom's a value, but so too are other things like distance from family and wealth differentials and access to Ethiopean restaurants. But write down today some bright-line rules that you think should trigger your future exit; it's easy to acclimatize to gradual changes for the worse.

Friday, 22 February 2013

The Insurance Council says insurers are about to ramp up the earthquake recovery process in Christchurch.

About 70% of residential insurance claims from the 2011 February earthquake, requiring major repairs or a rebuild, still need to be dealt with.

Insurance Council chief executive Tim Grafton said insurers have been able to start dealing with a majority of claims only in the last six months.

He said the hold-up was due to technical land damage assessments being available just nine months ago and ongoing earthquakes.

A progress report issued on Wednesday shows insurers have distributed $6.7 billion in commercial and residential claims in Canterbury.

Some insurers have set deadlines which will see most homes rebuilt or repaired by the end of 2015.

I'm calling BS. Sure, there are some major repairs that couldn't be undertaken without a land assessment, and others where the risk of ongoing aftershocks meant it wasn't worth starting out. But that's hardly been the binding constraint in at least a few cases.

We were insured with AMI before the earthquakes, now Southern Response.* We filed a claim with them immediately after the February 2011 event for damage to sidewalks, driveway, a wall and the pool. The kind of stuff that doesn't require anything tough to sort out: re-set the stone wall by the driveway, dig out the sidewalk where it's cracked and heaved up 4 inches, remove cracked cement paths and re-pour (or repair), re-do the swimming pool liner, severely twisted in the quake, and seal up some cracks in the driveway.

All of these count as "out-of-scope" claims - things not covered by EQC. No complicated "what part belongs to EQC, what part belongs to the private insurer". And no complicated land stuff to deal with.

When last I talked with Southern Response in October 2012, they said somebody would come to see me within the next two years.

If it takes two to four years to sort out repairs after an insured event, are you running an insurance company or a confidence scam?

We've not been on the phone hounding them every day which seems the only way to get any claim progressed through the system. The stuff we need done is pretty minor in the grand scheme of things and we don't want to displace people who have holes in their roofs. But there is absolutely positively zero chance that anything involving our claim is held up due to technical land assessments and ongoing aftershocks. They've just put everything out-of-scope to the back of the queue while dealing with the claims where they're having to sort stuff out with EQC. Fair enough (although they would have done better to hire more staff to process things more quickly).

But if everything were held up because of land assessments and aftershocks, they would have sorted out the simple stuff where that wasn't an issue and they haven't. I can't tell if it's incompetence, if they're deliberately delaying hoping that people give up, or if they're managing their cash flow.

On the positive side, AMI / Southern Response dealt quickly and reasonably with our claim for rental coverage when we spent a bit over a month in Wigram after the February quake.

Insurance in Christchurch feels like a huge scam. Minor stuff like dinging your car - that's all fine. But any serious systemic shock will always wind up bringing changes in government regs around building codes and the like that make eminently unclear just what was insured and tie things up in the courts for a couple years. I can sympathise with the insurers on some of this: they weren't writing policies on the risk of Council requiring more expensive building methods. And I like that they're consequently moving to capped total value contracts rather than full replacement cover - it should reduce, but not eliminate, post-event shenanigans. But even where that's completely not an issue, like at our place, they have utterly failed to get their act together.

Update: our EQC opt-out case sits where it has since before Christmas... waiting for EQC to sign off on our builder's costings. But at least we've had our meeting at the house with EQC and the builder.

* Quake claims are being dealt with by Southern Response, spun out of AMI when AMI was sold on to IAG.

David Farrar rightly notes that the recent CERA / Nielsen survey weighted survey responses by district populations across Christchurch City, Greater Christchurch, Selwyn and Waimakiriri. So some reports suggesting the report masked things by weighting each of Christchurch, Selwyn and Waimak equally were wrong.

But there's a potentially much bigger masking of heterogeneity.

After the earthquakes, Christchurch turned quickly into three cities, as Peter Hyde put it:

When we got power back on a week after the February earthquake, I sent out an electronic plea for more direct support and attention for the worst-affected suburbs of Christchurch.

This was in response to the "three cities" I saw developing - Rescue City in the photogenicly-ruined CBD, Shower City in the areas which had their services largely intact, and Refugee City where tens of thousands huddled amongst broken houses, rockfall and liquefaction.

When we bugged out from South Brighton for a house in Wigram on the Friday morning after the quake, it was like moving to another world. There was power. There were supermarkets. People were watering their lawns despite the sewerage system being in disarray. It was as though nothing had ever happened, barring a few chimneys. A lot of the East remains a rather thorough mess two years later.

I remember answering the CERA survey. I don't think I counted as a satisfied customer.

If you look at Appendix 2, every respondent was mailed the survey along with a username and unique survey code. So each response was tied to an address, unless they chose to blind the back-end so they wouldn't be able to tie respondents to addresses. They also had a question in there asking what address you were at prior to 4 September if you'd moved since the quake. That question says

"Please note: this information will only be used to see if there are differences between different areas. Your individual information will not be looked at separately."

Maybe they only ever wanted to aggregate up to Christchurch City, Greater Christchurch, Selwyn District, Waimakariri District level. But the data should be there for doing a within-Christchurch disaggregation. I'd be very surprised if there were not exceptionally strong heterogeneity between Shower City and Refugee City. Maybe nobody ever ran the borough-level analysis. Or maybe not - I really don't know.

If Lianne Dalziel is on her game, she'll already have an OIA request in for the data aggregated by borough. And if it shows that residents in the East - those most affected by the quakes - have reported utter dissatisfaction with quality of life, quality of government response, and pretty much everything else, I'd be pretty surprised if she weren't very vocal about it.

Thursday, 21 February 2013

The film explains that way back in 1978 a space colony community was formed using $50 billion of private funds. Back then, government regulations were just loose enough to allow them to form. But here in the year 2003, government regulators are trying to figure out a way to bring them back under their oppressive thumb through taxes and tariffs on the goods they ship back to Earth.

The whole film is available here but, alas, cannot be embedded. I'm pretty sure that the actor playing Dr. Chen, the head of Lasergy, is the same James Hong who later starred in The Chinese Restaurant episode of Seinfeld.

My favourite of this sort remains The Moon is a Harsh Mistress. It would make a great film; why hasn't someone tried it yet?

Wednesday, 20 February 2013

Beyond the jokes about sticky-fingered thieves, the crime has exposed a simmering war in the woods over syrup production and sales. And it has shed light on an unexpected accomplice in the growing illicit syrup trade: The province’s enforcement of a syrup cartel that has, since it was instituted a decade ago, helped spawn Prohibition-style smuggling and illegal sales.

Since the Federation of Quebec Maple Syrup Producers tightened its supply-management system, introducing quotas and a single sales agency in 2002, a thriving black market has developed. The theft from the strategic reserve was certainly the most brazen assault on the federation’s strict control of the industry, but it was far from the first one.

Supply management was implemented in the name of ensuring producers were getting a “fair” price for their product, and over the past decade prices for the now-controlled product have predictably and steadily climbed. Producers who exceed their quotas must transfer the excess into the strategic reserve, which is intended to cushion the effect of a bad season.

But for many, the federation’s zealous oversight goes too far. Cases before the Régie des marchés agricoles et alimentaires, the administrative tribunal that enforces the law governing the maple-syrup industry, give an indication of tactics used by the federation to enforce its cartel. Inspectors use aliases to stage phoney illegal syrup deals to ensnare bootleggers, just like undercover police conducting drug stings. And the Régie can order producers to provide utility bills and bank statements if they are suspected of selling their syrup outside the approved market.

Read the whole thing. A whole lot of the maple syrup theft investigation looks rather more like cartel enforcement against chiselers.

Here's something that it could be doing that could improve quality of life in post-quake Christchurch. It's something that should be low cost to implement as it builds on stuff Google's already doing.

Commuting in Christchurch has been a disaster for the last two years. The earthquake knocked a bunch of bridges and roads out for a while; repairs continue. Google knows about the semi-permanent closures downtown and routes traffic around them in Google Maps. But those are the closures that everybody in town knows about. More difficult to deal with are the rolling repairs - some roads will be shut down for a day to a month or more. Following SCIRT on Twitter gives some of these updates. Google Maps is pretty bad at keeping track of the small changes. Individuals can submit road closures, but it can take Google a while to respond.

But we know that Google is already scraping traffic information out of Android devices where users have given permission for Google to see location information. That's how they put up the traffic layers on the driving maps.

How hard would it be to estimate road closures based on changes in traffic movement? If traffic on a road suddenly drops off to nothing, even for users who'd been directed to use that road, odds are awfully likely that the road is now closed. And if traffic starts up on a road again, it's awfully likely that local drivers have noticed that the road's open again. Use forecast traffic combined with actual to scrape out an automated road closure reporting system. Then, route traffic around the estimated closures. Or, just give a pop-up for drivers around something that looks like a road closure: "Hey! Can you confirm for us whether the road you just avoided is actually closed?" And then experience-rate the Android devices, so if somebody starts driving closed roads for the lulz, their data stops updating the forecast.

Seems pretty simple. And it would make life here a bit better. I can't trust that Google, or the Garmin, are sending me by the most efficient route because Google doesn't know that Bridge Street is one-way westbound and that will be until about the end of the year. If Maps sends me from Uni back to home via the south side of downtown, is it because traffic is terrible on the north side of town, or is it because they're banking on my using a closed Bridge Street? When I diverted around a completely clogged Bealey Street this morning, Garmin missed that Victoria Street is today one-way southbound. And surely getting the systems set up for doing it here would let them do it everywhere.

I wish that SCIRT [the body in charge of post quake infrastructure repair] were better able to push closure updates through to Google and Garmin. Letting those systems know when roads are closed, combined with those systems' existing ability to monitor and route around traffic, should work to improve everyone's commute. Can we please please make this so? SCIRT has a few hundred back-office people last I heard. Couldn't one of them have the job of making sure that the main navigation devices know about the road closures?

Tuesday, 19 February 2013

Earthquakes can cause uninsurable losses. In Christchurch, a decent proportion of those losses are being borne by those who owned vacant sections at the time of the Canterbury earthquakes. When you purchase insurance on a house, it's coupled with a mandatory payment to EQC, who provide coverage against earthquakes, landslips, floods and the like, up to $100,000 per event. But EQC doesn't cover vacant sections, and figuring out arrangements with an insurance company for getting insurance on vacant land didn't seem obvious to most owners of vacant sections.*

In theory, this shouldn't matter a ton. Because there's a potential for an uninsured loss, everyone pays a bit less for the property because of it and takes their risks.

But suppose that, after the earthquake, the government comes in and tells you that your land is unremediable even if you think otherwise. They offer to pay you half its value as compensation. And there are hints that you'll be compelled to sell on worse terms if you refuse the offer.

Suppose that you decided to hold out: you don't want to take the offer and want to live on your land. Council would likely stop providing services to the property even if you offered to pay more for service provision, but you could always dig a well, put in a septic tank, hire a rubbish service, and put in some solar panels: off-grid in-town. But it was a vacant section: it may be impossible to get Council permission to build anything there, even if you build a one-story wooden place on screw piles that go down a few dozen meters and pay for extensive land strengthening. But suppose you get that sorted out, somehow. Council still could forbid access to the land: the street by your house will be reclaimed for some other purpose, all the neighbours have sold out, and you may be forbidden from using government-owned land for an access lane (or from purchasing an easement for such use). If the neighbors across the street are on TC-3 land [allowed to live there, but any new building has to be on much stronger foundations], it's harder for Council to force you out by preventing access because the road will still be in use. But it seems awfully likely that they'd simply refuse to allow you to build on it, even if you had a sound engineering design. Council doesn't like things that don't fit the plan.

The earthquake imposed a lot of damage on the land. But much of the subsequent loss is consequent to policy decisions. If you don't take the red zone offer, you may well be stuck with a piece of land that policy has made unusable. And because of that risk, and the veiled threats of expropriation if you don't take the red zone offer, it's not really an offer that can be refused.

CERA maintains a land status map. A static image is below. The red zones are the ones where the government says that land repair would be prolonged and uneconomic. This is different from the downtown Red Zone where access remains forbidden due to demolition work.

The government has never quite said what it's planning on doing with the red-zoned properties it acquires. There's been talk of a park running along the banks of the Avon; it would be a wonderful amenity if provided. But I'm not sure that anyone quite believes that reasonable parts of the red zone won't eventually be fixed up and sold back for development, albeit likely with substantial constraints on foundation types and construction method. The potential value of the land if fixed up and sold off could remain fairly high, even with the LIM restrictions; that locked-up value will be awfully tempting for future governments.

Imagine that you bought a section for your retirement home. You followed all the rules, but you didn't think to get insurance on a vacant section. You are happy to bear your own quake-losses. Post-quake, you're red-zoned and the government offers you half the land's value. You'd still prefer to stay on the section and build a redesigned house. The neighbours across the street are TC-3, so the street will continue to exist and services aren't hard. But you're very likely not allowed to do it with your own property that you still own. And then Aucklanders insult you because you didn't have insurance on a vacant section and begrudge the half-value payment offered by the government on terms that effectively cannot be refused.

I see little compelling reason that government should be insurer of last resort for those who failed to get insurance. But what proportion of the subsequent losses have really been due to changes in permitted land use rather than the direct effects of the earthquake? The half-value offer would be more than fair if the owners could still have the reversion option of making do on their own. But what's going on feels an awful lot more like forced purchase at well below the owners' willingness to accept.

And, if the land really is unbuildable, then it's costless to offer those selling first option to repurchase should the government ever decide that the land really could be sold - at the price at which they were compelled to sell to the government plus their apportioned share of the improvements. This still has problems: suppose that you're on the side of the street used as park while those on the other side of the street get the option to repurchase and subsequently on-sell at a profit. Perhaps a more clever scheme would then pay a dividend later on based on average comparable price increases. It's not an easy thing to set up, but we're really imposing a pretty substantial potential taking on many owners of vacant sections.

Take-away note for the Aucklanders: this isn't simply the government coming in and compensating people who hadn't bought insurance. This is the government coming in, telling you your land is unusable because they have deemed it to be so (the red zone has incurred substantial damage - true, but you're also kinda forbidden from making it usable at your own cost), and telling you that they'll give you half its prior value. Sure, there's been a real reduction in the land's value because of the earthquakes. And sure, some of those wanting full compensation are likely just rent-seeking: where the real reduction in land value is more than half of its prior assessed value. But there are some folks who really seem to be undergoing a forced and poorly compensated taking here.

* Newspaper reports keep claiming it was impossible, but I see conflicting reports from Kiwiblog commenters who claim to have sorted out such insurance on their own.

Does alcohol or drug use lead to a whole pile of other risk-taking activities, does some common underlying risk preference determine both substance abuse and other risky behaviours?

The Dunedin Longitudinal Survey group finds evidence that women with more sexual partners are more likely to later report substance dependence disorders than those with fewer partners. Women having had more than 2.5 sexual partners per year between the ages of 18-20 are 9.6 times more likely to report substance dependence disorders at age 21, adjusted for prior disorder incidence. Women aged 26-31 having had more than 2.5 partners per year are 17.5 times as likely to report substance dependence disorder at age 32. Similar patterns held among males, although the risk ratios were much smaller.

The explanation for the relationship is likely to be complex. Four possibilities are proposed. First, sexual risk taking and substance use may be part of the cluster of risk taking behaviors common in adolescence and young adulthood (Arnett, 1992; Boyer et al., 2000; Caspi et al., 1997; Desiderato & Crawford, 1995; Donovan & Jessor, 1985; Taylor, Fulop, & Green, 1999). For instance, people who are impulsive may be more likely to engage in both activities and, consequently, more likely to become substance dependent. Second, occasions of substance use are opportunities for sexual behavior because of its disinhibitory effects and lack of accurate perception of risk (Crowe & George, 1989; Fromme, D’Amico, & Katz, 1999). Weinhardt and Carey (2000) have suggested, in a review of event-level research on this topic, that the association, especially with condom use, is also complex. Thirdly, shared context may be an important factor, insomuch as young people are likely to meet new sexual partners in situations where alcohol is served. These settings might encourage sexual behavior and facilitate multiple partnering.

The fourth intriguing possibility is that it is something about having multiple sex partners itself which puts people at risk of substance disorder. For instance, it may be due to the impersonal nature of such relationships. Or, it might be that multiple failed relationships create anxiety about initiating new relationships. Self "medication" with substances may be one way of dealing with this interpersonal anxiety (Khantzian, 1997; Stoner, George, Peters, & Norris, 2006).

I'd also worry about cohort attrition effects: if men and women who are more psychologically stable are more likely to get married before the age of 30, then the pool of women reporting >2.5 sexual partners per year* between the ages of 26-31 is probably different from the pool of women reporting the same numbers in their early 20s [recall that the Dunedin study follows a cohort born in 1972-1973]. 9.5% of women reported 2.5+ partners per year at 18-20; that dropped to 4.5% by age 21-25 and to 1.7% - 8 women - by age 26-31.

I wish that the Dunedin study had some calibrated measure of risk tolerance, like the Holt and Loury measure, as well as a measure of individual discount rates. I would love to see pinned down what portion of risk-taking behaviour comes down to heterogeneity in individual risk tolerance, what portion comes down to that things with longer term costs might be disproportionately preferred by those who avoid the tyranny of the later-self, and what portion might be due to amplification effects where doing one risky thing actually does make you more likely to do another risky thing.

But the takeaway here is that studies suggesting drinking is associated with riskier sexual activity might well worry about reverse causation or common underlying causes.

* No, you can't have half a sexual partner. They're asked number of partners and that's averaged across the age range for that respondent.

Monday, 18 February 2013

The MOOCs are coming, the MOOCs are coming... batten the hatches and fire half the staff!

Well, maybe not. Or at least not yet.

Recall that, from the student's perspective, universities deliver a complicated mix of learnings, discipline, socialisation, enculturation, and perhaps the chance to find a suitable mate. It's not hard to see online education being able to provide some of the straight information-delivery part, but that's only part of the bundle offered by traditional institutions.

Students saying they value campus social life are attracted by more spending on student services but repelled by spending on academics; those who care about academics prefer universities that weight spending towards academics relative to student services.

Students planning on living at home while at university are less sensitive to university spending on consumption amenities than those living on their own.

Spending on student services correlates with student evaluations of campus life and also improves student assessment of the academic environment; spending on instruction improves measures of the academic environment but not measures of subjective quality of life.

They conclude:

More generally, our results suggest that colleges compete for students on many dimensions – price, distance, consumption amenities, academics – and that different students respond differently to these attributes because preferences are so heterogeneous. The importance of market pressure to the behavior of higher education institutions has not been thoroughly examined and the slim prior literature on the topic has focused exclusively on the role of academic quality and cost, ignoring other dimensions on which colleges compete. One important implication of our analysis is that for many institutions, demand-side market pressure may not compel investment in academic quality, but rather in consumption amenities. This is an important finding given that quality assurance is primarily provided by demand-side pressure: the fear of losing students is believed to compel colleges to provide high levels of academic quality. Our findings call this accountability mechanism into question. However, our findings do not speak to the normative issue of whether consumption amenities are good or bad for students and taxpayers.

As summarised by the Economic Logician, “except for the top students, high school graduates do not care about academics at all. All they want is excellent “college consumption amenities.” And this likely explains why they learn so little while in college. Their focus is on the university as a consumption good, not an investment good.” The policy-maker’s view of the value of university and the student’s view are very different.

What does this mean for policy, then? Well, if the private value of university is largely in the consumption value then the total value is far higher than most estimates suggest since they are usually based entirely on investment value. That has implications for the level of the subsidy we want to provide to tertiary students. In addition to the efficiency questions we also need to ask whether,as a society, we want to heavily subsidise most students on an extended holiday?

I conclude that MOOCs aren't likely to eat a substantial part of our academic lunch barring substantial changes in tertiary funding, or unless parents start balking at the large cost differential between online and on-campus options.

But I do worry about a model that could blend consumption amenities and lower cost structures: replacing a lot of standard university courses with MOOC equivalents, with local tutorial support. Core papers in a lot of disciplines follow an international standard curriculum. Were those moved to MOOCs with local tutorials, and locally based academics teaching the electives that have more local application, universities could move to a lower cost curve without as much harm to the other parts of the bundle.

Saturday, 16 February 2013

Suppose you owned an earthquake-damaged Christchurch hotel. Suppose further that you're trying to decide whether to rebuild in place, rebuild elsewhere in Christchurch, or take the money and run. If you're inclined to stay here, do you rebuild now or later?

Hotels like being next to convention centres. The big central plan has a big convention centre in it. But nobody has said anything about who will own it or quite who will pay for it. In the absence of concrete funding arrangements, it would be pretty hard for our hypothetical hotelier to know what to do:

Rebuild now and hope that the Convention Centre goes ahead in the spot they've designated?

But what if nobody agrees to stump up the money and they go ahead with a smaller center someplace else?

And what if the somewhere else is just where you've already started building your hotel and compulsory purchase is an option?

You'll get some rents in the interval before the other players move - there seem to be serious capacity constraints in accommodation. But the risks are pretty big too.

Rebuild later when you can be certain about whether the Convention Centre goes ahead?

You lose out on the rents you could have had in the interval, but hotels last a long time and getting the location wrong can be costly in the longer term.

Central and city government dithering over the convention centre can be pretty costly. It isn't hard to imagine worlds where it's better to have certainty that it won't go ahead than uncertainty for another couple of years, even if we assume that convention centres are a good thing for governments to spend money on.

Friday, 15 February 2013

Hey, Australia has a high minimum wage and low unemployment! Why can't America have that too!

Well, it's worth looking a bit beyond the headline rates.

Now I could have a whole lot of this wrong; I sure am not an expert on Australia's Byzantine labour awards system. Go find Judith Sloan over at Catallaxy Files and ask her if you're really keen. But here's my rough take.

Recall that economists worry most about disemployment of young workers just starting out - for them, a high minimum wage will be binding. Or it's most likely to be binding there. That's why people keep studying effects on youths.

Here are some of the exceptions to Oz's national minimum wage.

First, there's blanket exemption for youths. Sixteen year olds are paid half the adult minimum wage; things ramp up by age after that. Apprentices are on another schedule.

National minimum wages for apprentices, juniors & trainees

Special national minimum wages have also been set for trainees, apprentices and juniors who are not covered by any other award or agreement. These apply from the first pay period on or after 1 July 2012.

So if you're all rah rah rah, America needs to have a high minimum wage because Australia does, then you also might consider having a youth minimum wage that scales from a much much lower rate. Or at least mention that one reason the Oz system doesn't end up killing youths' employment prospects is because youths are exempt from the worst of it.

For youths who are covered by one of the ridiculously complicated national awards categories, there are specific proportionate clauses for youths. So take cleaners, for example. The standard minimum wage for adult Level 1 workers is $15.96. But a 16 year old gets 47.3% of that. A first year apprentice is paid 55% of the minimum wage. If you have a disability and your assessed capacity is 50% of other workers' capacity, you get 50% of the minimum wage provided the minimum amount isn't less than $76 per week. There's a separate minimum wage schedule for those who are completing traineeships and working as part of that, and the pay depends on both the highest level of schooling completed and how long it's been since you dropped out. The earlier you dropped out, and the more recently, the lower the minimum amount of pay. So a school leaver who completed Year 10 gets $8.96 instead of $15.96 as a part-time traineeship.

So:

Matt Cowgill really should point out that if the US wants to follow Oz, it really needs to add in alternative and lower minimum wages for groups most likely to suffer disemployment effects of high minimum wages.

UPDATE: Matt notes that Oz also has some minimum wages that are higher than the national baseline minimum. That's certainly true. But it also highlights that an across-the-board minimum wage is likely to be worse than one that takes better account of industry/job-specific factors. And what about regional characteristics? The optimal minimum wage has to be lower in Alice Springs than in Sydney. The marginal cost of implementing all this in Oz is lower than it would be in the US because Oz already has this big convoluted wage determination system of national awards.

UPDATE 2: Tyler Cowen wonders how Oz determines disability quanta; I also have no clue.

New Zealand's adult minimum wage is lower than that in Oz, but the minimum wage for a 16 year old here is way higher than the minimum wage in Oz. And NZ knocked out the differential lower minimum wage paid in sheltered workshops. The unions here said it was horrible to pay youths 80% of the adult minimum wage; in Oz, it's as low as 50% depending on the age.

I'm not sure that raising US minimum wages from 38% of the median full time wage will have that huge a disemployment effect; I'd be pretty surprised if it were noticeable. But I'd bet on effects if they start getting into the 45% and up range if they don't couple it with exemptions for vulnerable groups.

If Obama wants to index the minimum wage, he should index it to some fraction of median wages rather than to the CPI. At least if he wants monetary policy to be able to affect employment by cutting real wages at the bottom.

Some places make it illegal to host or view computer-generated pictures purporting to display minors; some places say fiction isn't a crime. So you can get arrested for looking at the Microsoft Paint pictures somebody drew of the Simpsons, depending on where you are. Get a server in a place where it isn't illegal to host fiction or CGI representations that are illegal to view in other regions. Watch the IP logs for people coming in from countries where viewing that content is illegal. Take their IP address and the browser stats that are basically a unique identifier, or close to it. Then put up the "We will contact the police in your country if you don't pay up" warning. People would know that the current Kiwi operation is a scam because looking at pornography isn't really illegal, and there's no way that the NZ Police would run this kind of instant-fine scheme. But the one I'm proposing... you could make pretty credible threats. Run the site for a few months without the extortion part so it can get a decent page rank for that kind of thing. Make sure there's no malware on the site or anything that might put off would-be targets. Then run the extortion scheme.

I am not advocating that anybody do this. It might be evil, depending on what you think about people who like to read stories about pedophilia, and whether you think reading fiction about pedophilia or looking at CGI pictures of same is a complement or a substitute for actual pedophilia. But it would be clever and it would work. I'm not even sure if it would be illegal to do it - it would have to depend on the jurisdiction from which you're hosting.

Come to think of it, I'd be surprised if nobody were already doing this. It looks like $20 on the sidewalk.

to make specified recommendations or comments (as defined in section 9) that, in the coroner's opinion, may, if drawn to public attention, reduce the chances of the occurrence of other deaths in circumstances similar to those in which the death occurred;

Persons appointed as Coroner "must have held a practising certificate as a barrister or solicitor for at least 5 years."

I'm sure that these are all smart and diligent people. I'm also sure that there is no required training in cost-benefit analysis in a legal degree.

The problem seems to be in the Act. Pretty much anything that could reduce the chances of particular forms of death can be recommended; there's no consideration anywhere of costs. It's fine to say that that's Parliament's job. But Coronorial recommendations carry some weight - people take them as being something more than "This is something that could save lives, but I have no clue whether it's worth it because I have zero training in policy assessment and cost-benefit analysis, so somebody else better figure out whether we'd be wasting a whole ton of resources in enacting it; moreover, the Act specifically asks me to just name any darned thing that might help even if it would cost a trillion dollars and save a life every fifty years."

I'd be willing to bet that a reasonable proportion of the above recommendations would fail any serious cost-benefit analysis. Mandatory high vis clothing for cyclists, licenses for nail guns, and mandatory skateboard helmets all seem exceptionally unlikely to pass any kind of "is this a reasonable policy" test.

This economist recommends that either Coroners get training in cost-benefit analysis, or start noting the limitations of their recommendations.

In the October 2012 quarterly report, we find that growth in weekly rental prices in Christchurch has outpaced that in the rest of the country; rents here began from rather below the national average and are now above it. I wonder what would happen were some of those rental prices to be quality adjusted; I'd also love to see data on how easy it is for would-be renters to find accommodation.

We also see that there are far more skilled vacancies here than elsewhere; more recent figures I believe have Canterbury's unemployment rate below that in the rest of the country. I wonder to what extent lack of rental availability prevents inbound migration by those who could work on the rebuild.

I've been appointed to the external review panel for CERA's economic indicators. Academics wishing that other data were available, or presented differently, please drop me a note; I can compile useful suggestions for the next meeting.

Thursday, 14 February 2013

No matter how much the screaming baby on an airplane annoys you, it really isn't imposing a Pareto-relevant externality. Recall that a Pareto-relevant externality is one where there are gains from trade that fail to obtain. The airline here is residual claimant: if it could earn more by having baby-free flights, or by restricting children to some segments of the airplane, it would do it. Airlines aren't going to throw money away by failing to implement baby-abatement policies if implementing them would earn them higher profits. Absence of baby-abatement airline policies is then evidence that inconvenience imposed on parents by a change in policy outweighs the inconvenience babies impose on other fliers.

Malaysia's two main airline groups have provided a way through the morass by creating kids-free zones in their biggest planes on long-haul routes.

Malaysia Airlines went first in 2011 when it banned kids in first class on its 747s and extended the policy in 2012 when it introduced the superjumbo A380 on twice-daily flights from Kuala Lumpur to London.

The A380 kids policy applies only to the upper deck's tiny economy section of 70 seats behind the 66 seats in business class. However, it's not an outright ban: the airline still has bassinets in the upper deck economy section and will allow kids if there's a kids overflow from the lower deck.

In any case, there are still baby bassinets on the upper deck in business class, so MAS is simply trying to make the upper deck quieter than it otherwise might be.

AirAsia X, which flies from Kuala Lumpur to the Gold Coast, Sydney, Melbourne and Perth and now has an interlocking shareholding with Malaysia Airlines, this month also introduced kids-free "quiet zones" in the forward section of its economy class, where kids under 12 aren't allowed. If you want a seat in the quiet zone, it's offered as an optional extra for which a surcharge applies.

"The airline is not banning kids from travelling, but instead, is enhancing the array of product offerings on board to suit its guests individual needs and preferences," says AirAsia X chief executive Azran Osman-Rani.

I love it when a Coasean-bargaining plan comes together.

There are situations where there are real Pareto-relevant costs imposed on you by other fliers despite the airline being residual claimant: government policy in some countries makes it illegal for airlines to charge heavy fliers more, or to require them to take an extra seat. Governments thereby create market failures by externalising the internality.